Harnessing the benefits of blockchain
Distributed ledger technology (DLT) – including blockchain – is like a massive, virtual spreadsheet that continuously records and verifies information in a digital format. At HSBC, we are investing in and developing this technology because it helps to improve efficiency, transparency and security across established networks, like the multiple parties involved in business transactions.
Watch our explainer video to find out more about blockchain, and then read on to discover some of the ways in which we are using the technology to improve customer experience.
Using blockchain to transform transactions (duration 1:15)
Global trade is by its nature decentralised and blockchain technology is well-suited to joining up disparate partners across the trade ecosystem. We are focusing on using it for the vital, previously paper-driven process for letters of credit, which are documents guaranteeing that a seller will be paid. Blockchain technology offers a fast and secure alternative, which is helping reduce letters of credit processing time from between five and 10 days to a matter of hours.
HSBC is one of eight banking founder members of the Contour (opens in new window) platform, which enables the end-to-end digitisation of trade finance, offering greater speed, simplicity and working capital efficiency to clients. The bank was instrumental in developing the technology and rulebook governing its use.
Since May 2018, we’ve taken part in using Contour to complete a total of 18 trade transactions involving more than USD35 million in goods. The platform is now in commercial operation, and we expect to carry out regular transactions over the network from early 2021.
Vinay Mendonca, Head of Product, Propositions and Structuring, Global Trade and Receivables Finance, HSBC, says: “Besides reducing friction, Contour will help accelerate the velocity of trade. In doing so, it will drive the commercialisation of digitised letters of credit and accelerate the adoption of digital trade by more banks and clients. We’re proud to be leading the charge in this space.”
We are also part of eTradeConnect (opens in new window), the first blockchain-based trade finance platform in Hong Kong. With 12 banks on the platform, eTradeConnect has built a strong ecosystem – as well as links with other useful partners including a mainland China-based blockchain platform and a global shipping consortium.
Another solution, we.trade , is a Europe-based joint venture created by 12 banks (including HSBC) to provide a blockchain platform for open account trade transactions. Hundreds of transactions have been completed on the platform to date.
Due to the global, cross-border nature of HSBC and our clients, thousands of foreign exchange (FX) transactions take place across multiple balance sheets in dozens of markets every day.
HSBC FX Everywhere uses distributed ledger technology to automatically settle these payments, improving the experience for our clients by increasing efficiency, lowering processing costs and reducing risk.
So far we have settled more than 2 million trades on the ledger with a total notional value of more than USD1.7 trillion. We are on track to have more than 85 per cent of internal FX back-to-back trades eligible for settlement on the platform by the end of this year.
Richard Bibbey, Global Head of FX and Commodities, HSBC, says: “Following successful implementation inside the bank, we are now exploring how this technology could help multinational clients – who also have multiple treasury centres and cross-border supply chains – better manage foreign exchange flows within their organisations.”
HSBC’s On-Chain Payment solution streamlines payments processes for multiple participants, by linking blockchain-based ecosystems to be able to transact in multiple currencies near instantaneously, 24/7.
Using this solution, HSBC has successfully performed the cash settlement in a pilot digital bond issuance in Singapore that represented a first for HSBC and for the country.
In partnership with Singapore Exchange (SGX) and investors Temasek Holdings, we successfully simulated a fully digitalised bond issuance on SGX’s DLT-enabled platform – in parallel with a traditional issuance – which reduced total settlement time from five days down to just two and made the process more efficient.
Several teams across HSBC Global Banking & Markets, including Securities Services and Global Liquidity and Cash Management, collaborated with technology and compliance partners to develop the issuance of ‘tokenised securities’ – or digital bonds – including the use of digital ‘smart contracts’ instead of paper-based contracts. The bank’s on-chain payments solution facilitated the settlement and transfer of proceeds to the issuer.
Diane S Reyes, Global Head of Liquidity and Cash Management, HSBC, says: “This digital bond issuance shows how our on-chain payments solution can fulfil payment needs in next generation asset networks. This is building a bridge between the new and old financial worlds.
“We are excited about the possibilities this opens up for businesses that want to realise the benefits of distributed ledger technology, while ensuring their transactions are fast, seamless and secure.”
Private placements are a capital-raising issuance offered to a private select group of investors. By their very nature, they are tailor-made transactions whose records have not generally moved from paper to electronic format because of the lack of standardisation.
HSBC’s Digital Vault is a blockchain-based custody platform which enables global custody clients to access details of their private assets – including equity, debt and real estate – directly and in real time via our online banking platform, HSBCnet, instead of having to request a search of paper-based records. There are currently USD13.5 billion in assets on this blockchain platform.
Ciaran Roddy, Head of Global Custody Product Asia, HSBC, says: “Clients want real-time visibility of their private placement transactions so that they know key terms of transactions including coupon rates and payment dates. Private assets are prime candidates for digitisation and we see this platform as a key step on the journey as the model evolves. We are preparing for the future, in which the full transaction lifecycle could be stored on a ledger, including issuing digital tokens instead of paper certificates.”
In February 2020, HSBC was recognised in the Forbes “Blockchain 50” list (opens in new window) acknowledging “enterprises who are speeding up processes, increasing transparency and generating real revenues and cost savings” through the use of blockchain technology.
Our innovative use of distributed ledger technology, including for FX Everywhere and Digital Vault, also helped us win two awards for transaction banking in 2020:
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